Is it worth spending money on a lead generation software?

In the age of the Internet when reaching people is easier than ever, getting their attention is the hardest task. Marketing has become an almost omnipresent craft, permeated by a DIY attitude. Being one of the primary marketing niches, lead generation, with all its subtleties, also tends to be simplified in many online resources that teach businessmen how to increase the number of their leads without spending any money on marketing tools.

While such resources can offer some valuable tips, especially to business owners who can’t afford other alternatives, lead generation is a whole different ball game, identified by 65% of marketers as their number one challenge, according to HubSpot. As such, it should be tackled with the established, professional, robust marketing methods and tools which have proven to simply reap better results. One such tool is a lead generation software.

How Does a Lead Generation Software Improve Results?

First of all, being a software, this tool naturally saves marketers a lot of time in comparison with manual lead generation – 21%, to be precise, according to Salesforce. It does so by breaking down the sales cycle to different stages and identifying which leads are sales-ready and which ones aren’t there yet, so sales reps can channel their efforts accordingly.

This simple redistribution of efforts streamlines the process more than you might think. Research shows that a staggering 73% of leads aren’t sales-ready when approached by sales reps, whereas lead scoring boosts conversions by 79%. This is also attributed to a lead generation software’s ability to track and follow-up on all the leads who visit your site and never come back unless they’re enticed to, as only 2% of website visitors contact the business themselves.

As you can see, a lead generation software is like a windmill that converts wind into actual energy. Without it, the wind is just a chaotic force that can’t be harnessed and can even end up doing damage.

That being said, you shouldn’t just plunge on and invest all your money into the most expensive lead generation software. A rash decision like this can derail your business altogether.

How Much Should You Spend on a Lead Generation Software?

Baseline

First off, you need a baseline. That’s easy – it can be the number of customers you had last year. The goal is to increase that number, and there are two ways to do it. You can increase your budget, or you can reduce the cost of each lead. The latter is certainly the better growth strategy as it improves the quality of your efforts rather than simply increasing them. You might not always be able to afford a higher budget.

Cost Per Lead

Your cost per lead is calculated as follows:

cost per lead = (advertising cost)/(number of leads)

However, most likely, the actual advertising is just one facet of your lead generation strategy. If content marketing is part of your agenda, you need to account for that, either by the money you’re paying for it, or the amount of time your staff spends on it. Do you pay for SEO? Social media marketing? Stickers?

You get the idea. Word to mouth is great, and so is blind luck, but those account for a couple of grains in your sandbox.

Customer Lifetime Value

Of course, getting leads and turning them into customers is one thing, but the money you earn from them over time is another. Even if a customer costs you a lot of efforts, and respectively money, initially, if that customer will be bringing you business for a long time afterwards, the investment is way worth it.

The idea here is the same as with sport agents signing big names – they go out of their way to get them, which isn’t lucrative in itself, but in the long run, it’s a huge win.

This is why you need to try your best to retain customers and make your initial efforts worthwhile. In fact, a mere 5%-increase in customer retention rates can translate into a profit increase of 25% to 95%, according to a research by Bain & Company.

So, let’s say your revenue is $10 and the cost of the good is $5. That makes your gross margin 50% for each good sold, or in your case, for each customer.

To calculate the profit you’ve made off of a customer, you add up all the transactions over the course of your business relationship and divide it by the gross margin.

Based on how often those transactions occur, you can get a sense of a customer’s lifetime value.

Churn Rate

The formula follows the same principle as the gross margin one, but the lower the percentage, the higher your retention rate.

Customer Churn rate = (number of customers at the beginning of the year – the number of customers at the end of the year)/number of customers at the beginning of the year

So, if you had 10 customers, and now you have 9, your churn rate is 1%. Experts believe businesses should strive to keep it within 5%.

Is Your Lead Generation Software Compatible with Other Sales Tools

This may sound like a minor thing, but is anything but. If your lead generation software isn’t compatible with the other sales tools you use, you’ll have to input everything manually, which defeats the purpose of streamlining the lead generation process to a large extent.

A lead generation software isn’t some fancy, superfluous technology you can simply replace by sheer effort, business instincts, and intelligence. Those human attributes are all indispensable to lead generation, but the software’s purpose is to utilize them to their full capacity and take your business to the next level.